# Russia and the international economy (73667-1)

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Russia and the international economy

1. Russia and the international trade system

According to a medium-term forecast for developments in the area of the international economy, business revival is cumulating momentum after the recession it experienced in early 1990s. It had a relevant effect on the world trade. In 1994 the average international trade turnover showed a 9.5 percent growth being a record figure in the last 20 years and by 3 times exceeding the increase in the international production. In 1995 the World Trade Organization estimated 8 percent increase in trade turnover as compared with a 3 percent growth in the world production. World Bank experts think that in the next 10 years an average increase in foreign trade will make 6 percent annually.

An economic run-up in most industrialized countries was followed by a growing demand for many products and a consecutive price hike on international markets.

Oil markets showed a balance of demand and supply in 1995. Average prices of Dubai oil were at $123 per metric ton, by 14.9 percent exceeding 1994 averages. Owning to small increase in the world oil consumption and practically unchanged supply situation no perceptible change of prices is expected. A trend of natural gas prices on markets in Western Europe was practically the same as the oil price dynamics. In 1995 average prices were by 13.4 percent higher as compared with 1994. Prices of nonferrous metals have risen dramatically. In 1995 average world prices were as follows: aluminum --$ 1806 per metric ton (20.3 percent rise in comparison with 1994), copper -- $2933 (higher by 23.3 percent), nickel --$ 8063 (19.3 percent growth).

As a result of the 1994-95 record price surge in the whole period after the World War II cellulose joined the leaders with a 50 percent price hike (up to more than $1000 per metric ton). According to a middle-range outlook price stabilization accompanied by a slight price rise is expected. As market relations develop, process of internal price structure formation continues in Russia and it gradually closes to the price system existing on world markets. In 1995 contract prices grew perceptibly, however, prices of a majority of energy resources lagged behind those on the world trade markets in terms of rates of increase. The outcome was a worsening balance between contract and world prices. An important role in development of the international trade is played by the GATT/WTO which for 48 years tried to work out the fundamentals of a future world trade basing on principles of observance of the Agreement's general regulations aimed to keep up non-discrimination of individual states and to a gradual elimination of barriers slowing down mutual exchange of commodities. Since 1950 the world trade turnover has increased by 13 times and eight rounds of multilateral trade negotiations held under the GATT's auspices have led to a ten-fold cut of average customs duties. At present it makes a bit less than 4 percent. Russia's accession to the WTO will make it possible to tap all measures existing within the framework of this organization in order to protect Russia's economic interests. At present direct or concealed discrimination of Russian producers and traders on markets of certain countries is among factors affecting Russian exports dynamics. Thus, only the ban on Russian uranium exports to the USA has led to losses for Russia, as estimated by some experts, at$170 million a year. The total number of anti-dumping procedures imposed upon Russia has reached 41. More than a half of them (22) are qualified as openly discriminatory cases or unjustified claims by the Ministry of Foreign Economic Relations.

In the summer of 1995 the first round of negotiations between the Russian delegation and the WTO's Working Group on Russia took place in Geneva. Members of the Working Group apprised information on foreign trade regulations stated in the Russian Memorandum as exhaustive enough.

An outcome of the second round taking place from December 4 to 7 of 1995 was the completion of discussion of the Russian Memorandum on the foreign trade regime as concerns trade in goods. Besides, the first discussion on special annexes to the Memorandum embracing protection of intellectual property rights, trade in services and trade-related investment measures was held. At the same time, the WTO member countries have reserved the right to revert to a detailed discussion on three key issues: if state-owned trade organizations exist in Russia (Moscow denies this); import licensing; subsidizing of external operations. However, even now they agree in principle that the Russian legislation is in accordance with the WTO's rules and norms in these areas of the foreign trade regulation.

There are no apparent opponents to Russia's accession to the WTO, since the world trade, especially in the area of trade in raw materials, cannot be regulated without participation of Russia. However, the admission of Russia may be surrounded by a number of additional obligations not directly following from the WTO requirements. Bilateral consultations held in Geneva have shown that Russia will face some complications in the course of tariff negotiations.

On the whole, the outcome of the second round of Geneva talks has been successful for Russia.

2. Regulation of External Economic Activities

In 1995 certain changes were introduced to the mechanism of the state regulation of the foreign trade. In the first half of 1995 the state regulation of oil exports was substantially amended: quotas and licenses in oil exports were abolished alongside with preferences (with exclusion of supply pursuant to intergovernmental agreements) while export duties on oil and oil products were significantly reduced; certain oil products were excluded from the list of strategically important commodities. Producers' access to channels allowing transportation of oil to other countries (pipelines and terminals in sea ports) became a natural restraint on exports.

The list of strategically important raw commodities was shortened and the institution of special exporters was abolished altogether. The system of contracts' registration became the main instrument of control over exports. Individual preferences granted to participants of external economic activities were abolished, excluding those issued in accordance with the laws of the Russian Federation.

The law "On State Regulation of Foreign Trade" adopted in July came into force in October. The law stipulated what authority in this area shall be with the President, the Government and the Ministry of Foreign Economic Relations. The exclusiveness of the MFER's position was emphasized by the fact that only it was vested with the right to license import and export transactions subject to quantitative restrictions or to approval procedures.

As pursuant to the law, the Russian Government shall submit a program of foreign trade development together with a draft of the Federal budget for the Parliament's approval. Alongside with other provisions this program shall embrace customs tariff rates planned for the year in question as well as the band of their possible fluctuation, thus making the foreign trade more predictable. The Government has the right to introduce export and import quantitative restrictions on national security grounds, to comply with international agreements or to protect the domestic market, however, these measures shall be announced not less than 3 months prior to their actual introduction. The law envisages a possibility to introduce state monopoly for trade in certain products. In this case a special procedure of licensing import and export operations exclusively to state-owned enterprises shall be applied.

As the above mentioned law was effectuated, the Commission of the RF Government on Safeguard Measures in Foreign Trade became fully legitimate and in December it received "Procedures of Investigation Prior to Application of Safeguard Measures" approved by the MFER (Russ.abbr. MVES). A possibility to apply safeguard measures against competitive imported products complies with usual practices applicable in the world trade. In this area Russia is late in working out and application of such measures, especially taking into account that Russian exports are often and in most cases unjustifiably subject to discrimination on foreign markets. So, the RF import regime loses its exceptional liberalism which has been characteristic of it until recently.

Tariff regulation. From September through December export duties levels were gradually lowered until their complete abolition since January 1, 1996, with an exception of a small group of goods including oil, natural gas and some other raw commodities.

In June and in October, 1996 import duty rates were changed. On the whole, changes were made in direction of an increase in tariffs. Earlier goods taxable at 1 percent have constituted a rather significant part of the list, at present this rate is only applicable to certain goods within Group 10 of the External Economic Activity commodity nomenclature (grain) and 1701 (cane sugar, beet firm sugar and sucrose). A 10 percent tariff is now applied to medicines which earlier have been exempt from duties while fish and fish products are subject to a double rise of duties (from 5 to 10 percent) and duties on vegetables were tripled (from 5 to 15 percent). For foodstuffs earlier exempted from duties new tariffs made 5 percent on bananas and citrus fruits, 10 percent on tee and coffee, 15 percent on fresh cucumbers, however, rates of import duties in Russia still remain considerably lower than in the EU countries (16 percent against 21 percent). There were effectuated provisions stipulating a 30 percent duty on goods such as luxuries, tobacco products, alcoholic beverages and weapons.

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